Big investors keep Michael Fallon posted on privatisation fears

Word reaches me of a City function a few weeks ago at which some interesting
views were exchanged. Drink flowed, food was eaten, men in suits marvelled
at the glass architecture. So far, perhaps not so revelatory.

On the Royal Mail, investors said that although they liked the idea of an initial public offering they were worried the Government might make it almost to the finishing post, only to pull up at the last minutePhoto: Bloomberg

The attendees were of interest, however. Guest of honour was one Michael Fallon, minister of state for business and enterprise – the man responsible for leading the looming privatisation of the Royal Mail – as well as minister of state for energy.

The other assembled guests included the usual coterie of City folk, as would befit the move of a stockbroker into a new building which the occasion was marking.

But amid the gathered throng of bankers and PR people were six or seven major investors representing firms which manage approximately half of all the institutional investments in the UK.

In a question and answer session, the investors – including representatives of Henderson and M&G – let rip on the issues that concern them most as individuals. According to people present, the main topics could be boiled down to three key areas: energy, Royal Mail and Goldman Sachs.

On energy, the investors questioned why the UK’s energy policy had created a situation where, as Ofgem recently admitted, there is a possibility of the lights going out. Given the flip-flopping on energy policy and projects – as highlighted by the current nuclear stand-off with EDF – how could institutional investors even consider investing in the sector when little certainty exists?

On the Royal Mail, investors said that although they liked the idea of an initial public offering –announced last week by Vince Cable, Fallon’s boss at the Department for Business, Innovation and Skills – they were worried the Government might make it almost to the finishing post, only to pull up at the last minute.

What is the point of trying to tempt investors with the promise of the sell-off of popular state assets and not follow through, argued the investors.

The third point, on Goldman Sachs, was perhaps most contentious. Why had Goldman been appointed to co-run the Royal Mail float, the investors asked. The US investment bank is running the IPO process for the Government alongside UBS. Fallon is in charge of the privatisation, and, presumably, had a say in the banks that were chosen.

Goldman, the investors said, tended to act in the interests of its clients – the Government – and itself, and not those of wider investors.

Fallon, perhaps surprised by the vocal grilling, attempted to play the questions with a straight bat, and was quite determined in his responses, defending the Royal Mail process and Goldman’s selection, and talking about his efforts in the energy sector.

It is worth noting that this was a conversation held behind closed doors, and the views of the individuals present may not be those of the firms they represent.

However, what the exchange does show is that there is still deep concern among investors on several fronts. As this paper reported last Sunday, infrastructure is an issue that concerns the Association of British Insurers. Add energy and privatisations to that list, and it is clear that for many, even those with a domestic bent, investing wholesale in the UK remains unappetising,

If Fallon is to make friends at such events in future, he needs to use his special role at the heart of government to enact real change.

Spare a dime for Buddi

Last Thursday’s announcement of a Serious Fraud Office investigation into G4S over its tagging business is not good news for investors in the troubled security conglomerate.

However, it might be good news for Sara Murray, founder of tagging minnow Buddi. Her small company has bid for one part of a Ministry of Justice (MoJ) tagging contract which could propel it into the big time.

Before Chris Grayling’s statement on G4S, an announcement on that contract was expected within two weeks. G4S was among the bidders, as was fellow incumbent Serco, which is also co-operating with an MoJ investigation. Surely Buddi should be given a chance, as it seems clear that the big boys can’t necessarily be trusted?